2017 Year-end Tax Planning for Individuals

For many, individual income taxes are one of the largest annual expenditures. BDO’s annual Year-End Tax Planning Letter provides opportunities for individuals to consider in order to reduce or defer their annual tax obligation. The 2017 Tax Letter discusses current legislation, proposed tax reform, retirement plan distributions, and stock options among some of the considerations for individual year-end tax planning.

Proposed Tax Reform Updates

On December 2, 2017, the Senate approved their proposed tax bill after making several last-minute modifications. The new provisions of most interest to individual taxpayers are as follows:

Small Business and Partnerships: The Senate increased the deduction available to taxpayers with income from partnerships, S corporations, and sole proprietorships. Accordingly, the Senate plan generally permits taxpayers to deduct 23 percent of the taxpayer’s domestic qualified business income. The deduction is limited to 50 percent of the qualified business’ W-2 wages. However, the wage limitation does not apply to taxpayers with taxable income below $250,000 ($500,000 in the case of joint filers). The deduction is not available to trusts or estates. Further, a 23 percent deduction is also available for qualified REIT dividends and qualified publicly traded partnership income received by the taxpayer.

Itemized Deductions: The final Senate proposal retained the deduction for property taxes but caps the deduction at $10,000 per year. The bill also temporarily lowered the adjusted gross income threshold for the medical expense deduction for all taxpayers who itemize their deductions, from 10 percent to 7.5 percent. The lower AGI threshold applies to taxable years beginning in 2017 and 2018.

Alternative Minimum Tax: The Senate retained the AMT but increased the exemption amount to $109,400 for joint filers and surviving spouses; $70,300 for single filers and heads of households; and $54,700 for married filing separate filers. Estates and trusts exemption remains unchanged at $22,500. The exemption phases out if the taxpayer’s alternative minimum tax taxable income exceeds $208,400 for joint filers and surviving spouses; $156,300 for single filers and heads of households; and $104,200 for married filing separate filers. Phase out for estates and trusts remains unchanged and begins when alternative minimum tax taxable income exceeds $29,375.

Up next: The House and Senate will have to reconcile the differences in their bills before final legislation can be voted upon and passed.

Individual Tax Rates & Adjusted Brackets

House Proposed Bill

Senate Proposed Bill

Tax planning for individuals also requires consideration of the tax consequences to any business conducted directly or indirectly by the individual owners. Accordingly, we suggest you also review our December Tax Letter entitled 2017 Year-End Tax Planning for Businesses.